What is the Income Tax Regime?
Income Tax Regime: The Default Option
Income tax regime refers to the income tax system used by the government for the purpose of income tax deduction from salary. In India, income tax regime changed from April 1, 2023, and it is now the default tax regime.
What happens if you don’t inform your employer about your preferred tax regime?
- Employer will deduct tax from salary according to the income tax slabs under the default tax regime.
- Higher tax will be deducted from salary, and you may have to claim a refund when filing ITR for FY2025-26.
Can you change the tax regime during the financial year?
According to tax experts, the decision to allow employees to change their tax regime in the middle of a financial year rests with the employer.
Usually, it is seen that the employers do not give employees the option to switch tax regimes during a financial year, as it complicates the calculation of taxes under different regimes and the corresponding tax deductions.
What if you change jobs during a financial year?
During a financial year, a salaried employee may switch jobs. However, if he had opted for the old tax regime with the old employer, can he select the new tax regime with the new employer or vice versa?
According to Tarun Kumar Madaan, a practising chartered accountant, you can switch tax regimes when changing employers. Each employer uses your declaration to deduct TDS based on your preferred tax regime at that point in time.
“Switching regimes mid-year, however, can create some complexities. Your old employer might have deducted TDS according to the old regime, while your new employer will calculate TDS based on the new regime. If an employee changes jobs during the year, they should provide their current employer with the details of their salary income from the previous employer, along with the tax that has already been deducted, so that taxes can be deducted appropriately by the current employer.”
“Clearly communicate your tax regime change to your new employer’s payroll team. Review your tax projection mid-year to ensure you’re on track. The final selection of the tax regime for the entire year is made when you file your income tax return (ITR). When filing your ITR, you have the flexibility to choose either the old or new regime, regardless of what you declared to one or more employers during the year,” Madaan adds.
Deductions under the new tax regime for salaried employees
| Standard Deduction | Employer’s Contribution to NPS Account | Deduction under the new tax regime |
|---|---|---|
| Rs 75,000 | 14% of the basic salary | Deduction of 14% of the basic salary plus Rs 75,000 |
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